India's fraud investigator arrests ex-chairman of debt-laden IL&FS

(Reuters) - India's Serious Fraud Investigation Office (SFIO) has arrested the former chairman of debt-laden Infrastructure Leasing and Financial Services (IL&FS) in connection with an ongoing investigation into the lender, a government official said on Monday.

Hari Sankaran, the former chairman and managing director of IL&FS, was arrested for “abusing his powers in IL&FS Financial Services Ltd through his fraudulent conduct” and will be in SFIO's custody until April 4, the official told Reuters on condition of anonymity.

IL&FS, a major infrastructure financing and construction company, has a total debt of 910 billion rupees ($12.97 billion) and has been trying to sell its assets to repay debt after several defaults forced the government to overhaul its management.

Sankaran granted loans to entities, which were not creditworthy or have been declared non-performing assets, causing wrongful loss to the company and its creditors, the official added.

IL&FS could not be immediately reached for comment.

IL&FS Financial Services had borrowings of more than 170 billion rupees ($2.46 billion) from debt instruments, bank loans and other investment firms, the official said.

A third of the total outstanding loans by a unit of IL&FS to borrowers were either unsecured or had inadequate collateral, a Grant Thornton India audit of the firm reported last month.

Bad loans at Indian banks reached a record $150 billion at the end of March, with state-run banks accounting for the lion's share. The huge pile of bad debt has hurt the bottom lines of state-run banks and hindered their ability to issue new loans.